The regulations relating to hospital cost reimbursement have similarly been justified by the Department as appropriate modifications of existing reimbursement methods warranted, in the case of the nursing cost differential, by several factors including changes in the composition of the medicare population, the increasing number of special care beds and other changes in medicare cost allocation methods. In the case of cost limits on routine service costs, the Department has stated that the new regulation is justified by a new hospital classification system which adequately accounts for variations in routine service costs. Hospital spokesmen have held, on the other hand, that both of these reimbursement regulations violate congressional intent in that they will result in a failure of medicare to adequately recognize and reimburse all of a hospital's legitimate costs in providing inpatient services to medicare beneficiaries.

Finally, complaints have been made about the economic index to be used in determining what medicare will recognize as reasonable charges for physicians' services. Although the use of an economic index was authorized in the 1972 Amendments, it is held that the specific index provided for in the regulation has serious technical deficiencies, is not fully consistent with the congressional intent, and is unfair to physicians.

It is important also to take note of several recurring themes which have appeared in the controversy surrounding these regulations. First, it has been argued that despite the complexity and significance of these regulations the Department has promulgated them without due regard for the need to provide reasonable opportunity to thoroughly study and comment on the specific provisions. Thus, it is held that in several cases requests for additional time to evaluate and comment on the regulations were rejected by the Department.

Second, it has been argued that the utilization review and cost reimbursement regulations will have particularly damaging effects upon rural hospitals and that the consequences will be a diminution of hospital resources and services available to medicare beneficiaries residing in rural areas.

Third, serious charges have been made to the effect that the regulations either violate congressional intent or a specific provision of the Social Security Act. As a result of such views, two of the regulations have already resulted in legal actionsuits to restrain the Secretary from implementing the utilization review and revised cost limit regulations---and indications are that the other two regulations may also be taken to court. While recourse to the courts is certainly an appropriate and legitimate step for those genuinely in doubt about the legality of a regulation, it should be a matter of some concern to the Congress when so many recent regulations under a program as vital and as widely accepted as medicare are challenged.

The Subcommittee's interest, therefore, is in obtaining a full accounting of the statutory basis, rationale, supporting evidence for and objections to these several regulations, not only to ascertain whether there has been compliance in specific cases with the congressional intent but also to assure that the medicare law continues to be properly administered.

We are not now concerned with the question of the wisdom of the statutory provisions on the basis of which these regulations were issued. The utilization review provisions of law, for example, were designed to serve as a mechanism for assuring appropriate use of services and facilities; the concept of such a mechanism remains valid whether or not the specific features of the current mechanism are fully effective. The Subcommittee does not, therefore, consider proposals to eliminate the provision or to markedly alter it as an appropriate part of this hearing. Similarly, the underlying statutory concepts of "reasonable cost" and "reasonable charges" are not here in question; what is under consideration is whether these concepts are being applied in accordance with the congressional intent and in a manner which accomplishes the congressional purpose without creating unwarranted or unreasonable burdens on the providers of health care services or on beneficiaries.

Scheduling limitations preclude us from conducting more than a one-day hearing at this time. We are hopeful, however, that all the issues will be addressed and all the relevant comments and evidence presented for the record. Since only a few witnesses can be heard at this hearing, all other organizations and individuals concerned with these regulations have been encouraged to submit written statements for the record in order that all relevant opinions and observations will be available for consideration by members of the Subcommittee.

[Subcommittee on Health press release, May 19, 1975]

SUBCOMMITTEE CHAIRMAN DAN ROSTENKOWSKI (D., ILL.), SUBCOMMITTEE ON HEALTH, COMMITTEE ON WAYS AND MEANS, ANNOUNCES PUBLIC OVERSIGHT HEARINGS ON SELECTED ISSUES IN MEDICARE PROGRAM POLICY

Subcommittee Chairman Dan Rostenkowski (D., Ill.), Subcommittee on Health of the Committee on Ways and Means, today announced that the Subcommittee will hold a public hearing on Thursday, June 12, 1975, beginning at 10:30 a.m., in the main Committee hearing room in the Longworth House Office Building on selected issues in medicare policy and program implementation. Testimony will be received from selected panels of witnesses on the issues arising from the promulgation in recent months of regulations, either in proposed or final form, on the following topics:

1. Utilization review procedures for hospital and skilled nursing facilities as conditions for participation in the medicare program (Federal Register: November 29, 1974, and April 1, 1975).

2. Termination of the inpatient routine nursing salary cost differential as as reimbursable cost of a provider (Federal Register: April 3, 1975).

3. Recognition of prevailing charge increases for physicians' and certain other services tied to economic indexes (Federal Register: April 14, 1975). 4. Revision in the schedule of limits on hospital inpatient general routine service costs-reduction from 90th to 80th percentile (Federal Register: April 17, 1975).

Several of the above sets of regulations reflect policy adopted by the Executive Branch for implementation of provisions contained in the Social Security Act Amendments of 1972 (P.L. 92-603, October 30, 1972). Serious and widespread concerns have been raised about the policies in these regulations, including the question whether the special characteristics of small rural hospitals are adequately taken into account. The Subcommittee on Health intends to examine these policies and their implementation in the light of congressional intent relative to the conduct of the medicare program.

The panels of public witnesses who have strong interests in the matters under consideration will be heard beginning at 10:30 a.m. Administration witnesses will be heard that afternoon. Opportunity will be provided for Members of Congress to testify. A list of the panels of witnesses will be released at a future date.

In view of the heavy schedule of the Committee and its subcommittees and the limited time available for this hearing, it has been decided that only the selected panels of witnesses invited by the Subcommittee can be heard in the public session. However, any interested person or organization may file a written statement for inclusion in the printed record of the hearing. For this purpose, statements should be submitted in triplicate by the close of business on Thursday, June 12, to John M. Martin, Jr., Chief Counsel, Committee on Ways and Means, Room 1102 Longworth House Office Building, Washington, D.C. 20515. Additional copies may be furnished for distribution to the press and the interested public during the course of the public hearing. Each statement must contain the following information on a summary statement at the beginning of the complete statement:

1. The name, full address and capacity of the individual submitting the statement.

2. The list of persons or organizations on whose behalf the statement is made and, in the case of associations and organizations, their address or addresses, their total membership and, where possible, a membership list. 3. If an individual wishes to submit a statement on his own behalf, he must still nevertheless indicate whether he has any specific clients who have an interest in the subject, or, in the alternative, he must indicate that he does not represent any clients having an interest in the subject he is writing about.

4. A topical outline or summary of the comments and recommendations in the full statement.

Mr. ROSTENKOWSKI. The plan of this hearing is that we will first hear from a panel of organizations representing hospitals, then a panel representing physician organizations, then several of our colleagues. I would expect that this process will take us well into the afternoon.

Secretary Weinberger wanted to personally testify at this hearing but could not be with us any earlier than 3:30 this afternoon. We have therefore scheduled his appearance at that time on the assumption that by then we will have completed the testimony from other witnesses.

We are dealing here with highly complex and highly important regulations which will have major effects on the health care providers in the Nation and on the 23 million beneficiaries served by the medicare program.

Since we have a good deal of testimony to hear today, I would like the panel of hospital organizations to introduce themselves and to proceed with their testimony.

But first I would like to make this observation for our guests and witnesses.

It is the intention of the Chair to work, if necessary, through the noon hour. I am sure that the witnesses understand that we will be in session in the House of Representatives and there will be periods when rollcalls will make it necessary for us to absent ourselves. I hope that I can have the cooperation of the members of this subcommittee as I have had in the past, to work through lunch. If, after the panel discussions and our colleagues' testimony, we can have a recess period before Secretary Weinberger testifies, we will do that. But it is the intention of the Chair, with the cooperation of the ranking minority member, Mr. Duncan, to try and go through the lunch period.

A PANEL OF HOSPITAL ORGANIZATION WITNESSES CONSISTING OF JOHN ALEXANDER MCMAHON, PRESIDENT, AMERICAN HOSPITAL ASSOCIATION; MICHAEL D. BROMBERG, DIRECTOR, NATIONAL OFFICES, FEDERATION OF AMERICAN HOSPITALS; MICHAEL F. DOODY, EXECUTIVE DIRECTOR, AMERICAN OSTEOPATHIC HOSPITAL ASSOCIATION; SISTER MARY KIERAN HARNEY, R.S.M., CHAIRMAN OF THE BOARD OF TRUSTEES, CATHOLIC HOSPITAL ASSOCIATION; CHARLES D. PHILLIPS, ED. D., PRESIDENT, AMERICAN PROTESTANT HOSPITAL ASSOCIATION; AND SIDNEY LEWINE, CHAIRMAN, COUNCIL OF TEACHING HOSPITALS, ASSOCIATION OF AMERICAN MEDICAL COLLEGES

Mr. ROSTENKOWSKI. Mr. McMahon, if you will introduce your panel and proceed with your testimony, please.

STATEMENT OF JOHN ALEXANDER MCMAHON

Mr. MCMAHON. Thank you, Mr. Chairman.

I am John McMahon, president, American Hospital Association. Our association represents some 7,000 member institutions and 21,000 personal members.

In addition to the American Hospital Association, five other hospital associations have been invited by the subcommittee chairman to submit statements and participate in today's oversight hearings on a number of major regulatory issues relating to the medicare and medicaid programs.

In order of appearance are: Michael D. Bromberg, director, national offices, Federation of American Hospitals; Michael F. Doody, executive director, American Osteopathic Hospital Association; Sister Mary Kieran Harney, chairman of the board of trustees, Catholic Hospital Association; Charles Phillips, president, American Protestant Hospital Association; and Sidney Lewine, chairman, Association of American Medical Colleges, Council of Teaching Hospitals.

Mr. ROSTENKOWSKI. Before you proceed, it is the usual manner in which this committee operates that the statements be made by the individuals, then if there are any questions or discussion that is necessary between the panel members with the possibility of the membership of the committee at points asking questions, and then going through the membership of the subcommittee to ask individual questions.

Mr. MCMAHON. Fine, Mr. Chairman, we will be pleased to respond in any way the committee desires.

For hospitals this is a time that tries men's souls. Normally, they operate on a thin margin without substantial profits or reserves to draw upon in troubled periods, a margin in normal times of less than 3 percent. The economic stabilization program reduced margins to less than 1 percent, and now inflation has hit hard, raising operating costs. As you know ours is a highly labor-intensive industry. Our operating needs are unusual and varied; our institutions experience costly outlays for energy to heat and cool hospitals, to provide diagnostic and therapeutic aspects of care, as well as to support the base for many disposables and drug items necessary to the services we provide.

Food costs figure prominently among our cost items, and insurance rates for medical malpractice have become an increasingly serious problem, to cite but two examples. Meanwhile, our institutions are also subject to the winds of technological and social change. For example, outpatient departments of many major institutions are increasingly and heavily used for primary care and often in circumstances which preclude appropriate payment for such services, thereby producing losses in some hospitals which threaten them with bankruptcy.

At the same time the voluntary system is being bombarded by a host of government regulations-many that require increased expenditures and others that irrationally cut back appropriate payment for patient care.

Hospitals as institutions have always operated with the public interest as their primary objective. It has been the tradition of these community institutions to look first at what needs to be done and second at the ways in which their activities can be supported. Government has long recognized this unique characteristic of hospitals and has looked to these institutions to support the efforts of government. The abrupt and unreasonable actions which are today being taken by the Government are in part exemplified by the areas that are the subject of these hearings, and these actions raise the real question. of whether there will be a continued role for the voluntary health system in the delivery of health care.

I am certain that the committee is aware that the stable operation of community health resources is fundamental to all of our efforts

both governmental and nongovernmental. To make quality health care accessible to all citizens in the most efficient and effective manner possible is our common goal. Such an achievement is not attainable unless there is both understanding and meaningful action by all parties.

Yet today, we are faced with a continuing series of adversary confrontations. For example, three of the issues that are pertinent to our discussions this morning are also subject of current litigation. We are appreciative of this committee's interest in discussing this matter and we need your assistance. We are justifiably proud of past accomplishments and are dedicated to further improvements. I am sure that you recognize that progress can only be made in an environment that permits change and assists, rather than destroys, the basic fabric of such effort.

It is in this context that I would like to present briefly an overview of the circumstances surrounding three of the issues before you.

The first issue I would like to discuss is the recently published "Notice of Termination of the Inpatient Nursing Differential in the Medicare Program." This action on the part of the Office of Management and Budget-OMB-and the Department of Health, Education, and Welfare-HEW-will be effective for medicare patients cared for by the institutions during fiscal years beginning on or after July 1, 1975.

The Social Security Administration is implementing the medicare program had to define what it considered to be reasonable cost. In the process it became obvious that patients over 65 required more personal care and assistance than did the general patient population. It was also clear that existing reimbursement systems did not accurately reflect a number of cost elements, including the additional service requirements of aged patients. Thus, from the very first, the medicare program recognized that an accurate reflection of the costs of care for aged people required that a factor be added to the basic cost of care. Therefore, in 1966, at the beginning of the program, a 2-percent factor was added to the basic cost figures in the medicare reimbursement formula.

After several years of operation, however, in the Department's quest for cost savings, HEW proposed that this 2-percent factor be eliminated entirely. After the injustice of this was pointed out and recognized, the 2-percent factor was replaced in part by an allowance for the difference in nursing needs between medicare patients and others, which, in effect, reduced the addition to costs reflecting the increased care to the aged from the original 2 percent to a 1-percent level. The allowance of 8%1⁄2 percent of routine nursing costs was based upon studies which showed that aged patients on the average receive routine nursing care that is more costly because it is more extensive and because it requires more time.

A word may be helpful about the factors which contribute to these additional requirements. Many aged patients require assistance in eating; are either incontinent or require help for use of bedpans or bedside commodes; suffer more often the types of impairments such as fractures or paralysis that demand a great deal of so-called routine care; are confused, disoriented, or depressed and as a result are unable to help themselves; have hearing or sight problems; suffer from more secondary medical conditions which have to be treated along with